Investors need to remain vigilant about AMC funds

In the week gone by, many reacted with alarm about the fate of their investments. Such concern is natural and expected because many investors do not know exactly what happens when an AMC (or its funds) are acquired by another. Dhirendra Kumar writes.

Last week, I wrote about the impending exit of Fidelity Mutual Fund from India. Mostly, I focused upon business aspects of Fidelity’s and other asset managers’ previous exits from India. In the week gone by, as the news reached investors, many reacted with alarm about the fate of their investments. Such concern is natural and expected because many investors do not know exactly what happens when an AMC (or its funds) are acquired by another.

There are two levels of concern. One is a somewhat naive, where an investor is worried that if an AMC is quitting India because it has too many losses then is his money somehow involved in this. These worries crop up whenever there is any talk of AMC’s business environment. The answer is straightforward—investors’ money has nothing to with the AMC’s business.

The country’s mutual fund regulations take complete care of the fact the AMC’s finances and business is completely isolated from investors’ funds. They are held in a separate account. The AMC manages the money and gets a fee for doing so out of the funds. Whether it makes profits or losses out of that fee is its own problem, not the investor’s.

But that’s only one aspect of it. People have invested in Fidelity’s funds because of their investment track record. And that track record is the result of investments done by Fidelity’s investment managers, following processes that may be characteristic to the AMC.

Will the performance be maintained? No one can tell. Fidelity’s funds may be sold off to someone who manages them worse, or better, or about the same. As business is done, it’s even possible that Fidelity may actually not find a buyer or may decide to stay on in India. In any case, investors have to be vigilant about what happens to the AMC’s funds.

However, at this point of time, there isn’t a strong case for redeeming money from Fidelity’s funds.